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Capital-labor substitution and competitive nonlinear endogenous business cycles

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  • GRANDMONT, Jean-Michel

    ()
    (CNRS and CREST,Malakoff, France)

  • PINTUS, Patrick

    (THEMA, University of Cergy-Pontoise, France)

  • de VILDER, Robin

    (University of Amsterdam, Department of Mathematics)

Abstract

We develop in this paper simple geometrical methods to study local indeterminacy, bifurcations and stochastic (sunspot) equilibria near a steady state, in nonlinear two dimensional economic models. We present stochastic sunspot equilibria, which allows a constructive description of local bifurcations. The latter analysis is relevant when some eigenvalues of the linearized dynamics, near the steady state, have a modulus close to one (“unit root(s)”), as taking into account small nonlinearities generates linear local approximation. These methods are applied to a simple aggregative model (Woodford (JET, 1986)), to study in particular the influence of capital-labor substitution and of the aggregate labor supply wage elasticiy, on the occurrence of competitive endogenous deterministic or stochastic fluctuations.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997087.

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Date of creation: 01 Nov 1997
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Handle: RePEc:cor:louvco:1997087

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Keywords: Endogenous business cycles; sunspots; indeterminacy of equilibrium; nonlinear dynamics; bifurcations; unit roots;

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